E-Commerce Ethical and Legal Issues

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Dave Chaffey, E-Business and E-Commerce Management, 3rd
Edition © Marketing Insights Ltd 2007
Extra Notes on Ethical Issues
2010

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Activity Question
• List all the social, legal and ethical issues that
the manager of a sell-side e-commerce web
site needs to consider to avoid damaging
relationships with users of his or her site or
which may leave the company facing
prosecution.
– You can base your answer on issues which
may concern you, your friends or your family
when accessing a web site.

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Activity answer – this lecture
• Cookies – laws and consumer perception on placing
these
• Are we limiting access to information from certain
sections of society (social exclusion)?
• Privacy of personal information entered on a web site
• Sending unsolicited e-mail
• Replying promptly to e-mail
• Copyright
• Site content and promotional offers/adverts are in
keeping with the different laws in different countries
• Providing text, graphics and personality in keeping
with social mores of different countries

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SLEPT Factors
• Macro-environment
–Social
–Legal
–Economic
–Political
–Technological

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Figure 4.1 ‘Waves of change’ – different timescales for change in the environment

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Ethical issues and data protection
• Ethical issues concerned with personal information
ownership have been usefully summarized by Mason
(1986) into four areas:
1. Privacy – what information is held about the
individual?
2. Accuracy – is it correct?
3. Property – who owns it and how can ownership be
transferred?
4. Accessibility – who is allowed to access this
information, and under which conditions?

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Ethics – Fletcher’s view
• Fletcher (2001) provides an alternative
perspective, raising these issues of concern
for both the individual and the marketer:
1.Transparency – who is collecting what
information?
2.Security – how is information protected once
collected by a company?
3.Liability – who is responsible if data is
abused?

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The eight principles for data protection
• Fairly and lawfully processed;
• Processed for limited purposes;
• Adequate, relevant and not excessive;
• Accurate;
• Not kept longer than necessary;
• Processed in accordance with the data subject's
rights;
• Secure;
• Not transferred to countries without adequate
protection.
www.dataprotection.gov.uk

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Figure 4.7 Information flows that need to be understood for compliance with data
protection legislation

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Legal – Sparrows eight areas
1. Marketing your e-commerce business
2. Forming an electronic contract
3. Making and accepting payment
4. Authenticating contracts concluded over the
Internet
5. E-mail risks
6. Protecting Intellectual Property
7. Advertising on the Internet
8. Data protection.

Copyright © 2004 Pearson Education, Inc.
Major issues
 General Ethical Issues
Categories of Public Policy and Politcal Issues
 Privacy
 Intellectual Property Rights
 Free Speech
 Taxation

Understanding Ethical, Social, and Political: Models and
Frameworks
 Internet technology and its use in e-commerce disrupts existing
social and business relationships and understandings: Many
categories of laws have been re-written to deal with new
technology. These include how to manage the
Telecommunications Industry. Other areas talked about here are
on Intellectual Property.
 While the legal system is one means of protecting rights, new
technologies bring new costs and benefits structures of
industries. For example, it is easier to access the content of
books for example. Using technology to protect rights must
also be carefully considered, especially when there are as yet
no clear-cut legal or cultural guidelines.

A Model for Organizing the Issues
 Issues raised by Internet and e-commerce can be
viewed at individual, social and political levels
 Four major categories of issues
 Information rights: What rights do individuals have to
control their own personal information when Internet
technologies make information collection so
pervasive and efficient
 Property rights: How can traditional intellectual
property rights be enforced when perfect copies of
protected works can be easily made and distributed
 Governance: Should the Internet and e-commerce be
subject to public laws, and if so, who has jurisdiction
 Public safety and welfare

Copyright © 2004 Pearson Education, Inc. Slide 9-14
Moral Dimensions of an Internet Society
Figure 9.1, Page 498

Basic Ethical Concepts
 Ethics: Study of principles that individuals and
organizations can use to determine right and wrong
courses of action
 Responsibility: As free moral agents, individuals,
organizations and societies are responsible for the
actions they take
 Accountability: Individuals, organizations and societies
should be held accountable to others for the
consequences of their actions
 Liability: Extends the concepts of responsibility and
accountability to area of law
 Due process: Refers to process by which laws are
known and understood, with ability to appeal to higher
authorities to ensure that laws have been correctly
applied

Analyzing Ethical Dilemmas
 Dilemma: Situation in which there are at least two
diametrically opposed actions, each of which
supports a desirable outcome
 Process for analyzing ethical dilemmas:
 1. Identify and describe clearly the facts
 2. Define the conflict or dilemma and identify the
higher-order values involved
 3. Identify the stakeholders
 4. Identify the options that you can reasonably
take
 5. Identify the potential consequences of your
options

E-commerce and Privacy
 Major ethical issue related to e-commerce
and privacy: Under what conditions should we
invade privacy of others
 Major social issue: Development of
“expectations of privacy” and privacy norms
 Major political issue: Development of statutes
that govern relations between recordkeepers
and individuals

The Concept of Privacy
 Privacy: The moral right of individuals to be
left alone, free from surveillance or
interference from other individuals or
organizations
 Information privacy: Includes both the claim
that certain information should not be
collected at all, as well as the claim of
individuals to control the use of whatever
information is collected about them

Information Collected at E-commerce Sites
 Personally identifiable information (PII): Data
that can be used to identify, locate or contact
an individual
 Anonymous information: Demographic and
behavioral information that does not include
any personal identifiers
 Almost all e-commerce companies collect PII
and use cookies to track clickstream behavior

Personal Information Collected
by E-Commerce Sites
Table 9.2, Page 505

The Internet’s Major Personally Identifiable Information
Gathering Tools
Table 9.3, Page 505

Profiling: Privacy and Advertising Networks
 Profiling: Creation of digital images that characterize
online individual and group behavior
 Anonymous profiles: Identify people as belonging to
highly specific and targeted groups
 Personal profiles: Add personal identifiers
 Advertising networks can:
 Track both consumer behavior and browsing
behavior on the Web
 Dynamically adjust what the user sees on screen
 Build and refresh high-resolution data images or
behavior profiles of consumers

Informed Consent
 Consent given with knowledge of all the material
facts needed to make a rational decision
 Two models:
 Opt-in: Requires an affirmative action by the
consumer to allow collection and use of
information
 Opt-out: Default is to collect information unless
consumer takes an affirmative action to prevent
the collection of data
 Many U.S. e-commerce firms merely publish
information practices as part of privacy policy without
providing for any form of informed consent
 Microsoft’s .Net Passport privacy policy illustrates
some of difficulties of understanding privacy policies
and risks

Excerpts from Microsoft’s .NET Passport’s Privacy Policies
Table 9.4, Page 511

Sears’ vs. Yahoo’s Opt-In/Opt-Out Privacy Policy
Table 9.5, Page 513

Legal Protections for Privacy
 May be explicitly granted or derived from
constitutions (U.S., Canada, Germany)
 May also be found in common law (U.S,
England)
 In U.S, also found in federal and state laws
and regulations

Statutory and Regulatory Protections of Online Privacy
 In U.S., Federal Trade Commission has taken lead in
conducting research and recommending legislation to
Congress
 FTC Fair Information Practice Principles (1998):
 Notice/Awareness (Core)
 Choice/Consent (Core)
 Access/Participation
 Security
 Enforcement

FTC’s Fair Information Practice Principles
Table 9.7, Page 515

FTC Recommendations Regarding Online Profiling
Table 9.8, Page 516

Privacy
US Federal privacy (and privacy-affecting) laws include:
 Federal Trade Commission Act (1914)
 Fair Credit Reporting Act (1970)
 Privacy Act (1974)
 Freedom of Information Act (1974)
 Family Educational Rights and Privacy Act (1974)
 Foreign Intelligence Surveillance Act (1978)
 Right to Financial Privacy Act (1978)
 Privacy Protection Act (1980)
 Cable Communications Policy Act (1984)
 Electronic Communications Privacy Act (1986)
 Video Privacy Protection Act (1988)
 Employee Polygraph Protection Act (1988)
 Telephone Consumer Protection Act (1991)
 Driver's Privacy Protection Act (1994)
 Health Insurance Portability and Accountability Act (1996)
 Telecommunications Act (1996)
 Children's Online Privacy Protection Act (1998)
 Financial Modernization Services Act (1999)
 USA Patriot Act (2001)

Example 1: Health Insurance Portability and
Accountability Act of 1996 (HIPAA)
 HIPAA is the federal law that establishes standards for the privacy and
security of health information, as well as standards for electronic data
interchange (EDI) of health information.
 HIPAA has two main goals, as its name implies:
 making health insurance more portable when persons change
employers, and
 making the health care system more accountable for costs -- trying
especially to reduce waste and fraud.
 HIPAA as implemented has four health information standards, and four
associated sets of regulations or "rules":
 standardized formats for all computer-to-computer information exchanges (th
;
 standardized "identifiers" for health providers, health plans and (maybe) pati
;
 information system security standards; and
 privacy standards.

Example 2: USA Patriot Act (USAPA)
 The Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act (Public Law
107-56) is usually referenced by its short name, USA Patriot Act. Or,
just as USAPA.
 Passed shortly after the events of Sept. 11, USAPA is best labelled
as anti-privacy law; it restricts, reduces or eliminates the protections
of many federal privacy laws. Whether it does so appropriately or
excessively is, to put it mildly, a matter of some controversy.
See also:
 Electronic Privacy Information Center, USAPA information
 Electronic Frontier Foundation, Analysis of USAPA
 Slate/Lithwick analyis of USAPA -- part 1, part 2, part 3 and part 4

Private Industry Self-Regulation
 Safe harbor: Private, self-regulating policy and
enforcement mechanism that meets objectives of
government regulations and legislation, but does not
involve government regulation or enforcement
 Example: Privacy seal programs such as TRUSTe
Internet privacy protection program
 Industry associations include:
 Online Privacy Alliance
 Network Advertising Initiative

Summary of Doubleclick’s Privacy Policy
Table 9.10, Page 519

Privacy Advocacy Groups

Technological Solutions to Privacy Invasion on the Web
 Many privacy-enhancing technologies being
developed emphasize security
 Platform for Privacy Preferences (P3P):
Comprehensive technological privacy protection effort
sponsored by W3C
 Is a standard designed to communicate to Internet
users a Web site’s privacy policy, and to compare
that policy against user’s preferences or to other
standards such as FTC’s FIP guidelines or EU’s
Data Protection Directive

Technological Protections for Online Privacy

IE 6.0’s Implementation of P3P
Figure 9.3(B), Page 525

Case: The Privacy Tug of War
 Some technologies being used to invade privacy:
 Experian.com, ThinkDirectMarekting.com– provide
names and addresses of visitors to Web sites in real
time
 TIAN: monitors online behavior of visitors from 16
different perspectives
 Some technologies being used to protect privacy:
 iPrivacy.com – provides proxy server to anonymize
consumer
 Persona, McAfee: programs that allow user to control
and manage cookies
 PGP 8.0: uses encryption to protect e-mail

Intellectual Property Rights
 Intellectual property: Encompasses all tangible and
intangible products of human mind
 Major ethical issue: How should we treat property
that belongs to others
 Major social issue: Is there continued value in
protecting intellectual property in the Internet age?
 Major political issue: If, and if so, how, should Internet
and e-commerce be regulated/governed to protect
intellectual property
 Main types of intellectual property protection:
 Copyright
 Patent
 Trademark law

Intellectual Property Rights Policy
 Copyrights – protects forms of expression
 Patents – protects ideas behind invention
 Trademarks – protects against dilution of the
mark, blurring or tarnishing meaning.
 Digital Media rights:
 http://cit.cornell.edu/oit/ucpl/DigMedia_1006041.ppt
(by John Palfrey)
 http://cit.cornell.edu/oit/ucpl/Palfrey2.ram
(video by John Palfrey)

Copyright
What is a Copyright?
 Copyright is a protection that covers published and unpublished
literary, scientific and artistic works, whatever the form of
expression, provided such works are fixed in a tangible or
material form. This means that if you can see it, hear it and/or
touch it - it may be protected. If it is an essay, if it is a play, if it is a
song, if it is a funky original dance move, if it is a photograph,
HTML coding or a computer graphic that can be set on paper,
recorded on tape or saved to a hard drive, it may be protected.
Copyright laws grant the creator the exclusive right to reproduce,
prepare derivative works, distribute, perform and display the work
publicly. Exclusive means only the creator of such work, not
anybody who has access to it and decides to grab it.
http://www.whatiscopyright.org/

What is Copyright protection?
 Copyright protection begins when any of the above described work is actually created
and fixed in a tangible form.
 For example, my brother is a musician and he lives in the United States. When he
writes new lyrics, he prints them out on paper, signs his name at the bottom with the
Copyright © symbol to show that he is the author, places it in an envelope and mails it
to himself without opening it. His copyright begins at the moment he puts his idea in a
tangible form by printing the lyrics out on paper. He creates proof when he mails it to
himself - the postmark establishes the date of creation. He then registers his copyright
with the U.S. Copyright Office which is a requirement in order to sue for monetary
damages should a violation of his copyright arise. However, if somebody copies and
redistributes his lyrics without permission before his copyright is registered, he still has
the right to assert a copyright claim as the true author.
 The above applies to digital art and graphics. Open a gif, jpg or png file that you
created and look at the properties. It states the date that you saved it to your hard drive
as the date of creation. If somebody copies a graphic from your web site I assure you
that the date of creation on your copy of the file is earlier than the copy taken off your
web site. If that still doesn't feel like enough proof for you, save everything to a floppy
disk and mail it to yourself via certified mail. Keep the envelope sealed, wrap it in
protective plastic and put it in a safe place.

Copyright protection – how long?
 The Berne Convention establishes a general and
minimum period that lasts the life of the author and
fifty years after his (or her) death. Cinematographic
works and photographic works have a minimum
period of protection of 50 and 25 years upon the date
of creation, respectively. This applies to any country
that has signed the Berne Convention, and these are
just the minimum periods of protection. A member
country is entitled to establish greater periods of
protection, but never less than what has been
established by the Berne Convention.

Copyright: The Problem of Perfect Copies and Encryption
 Copyright law: Protects original forms of expression (but
not ideas) from being copied by others for a period of
time
 Look and feel copyright infringement lawsuits involve
distinction between an idea and its expression
 Fair use doctrine: Under certain circumstances, permits
use of copyrighted materials without permission
 Digital Millennium Copyright Act of 1998 (DMCA): First
major effort to adjust copyright laws to Internet age
 DMCA implements WIPO treaty that makes it illegal to
make, distribute, or use devices that circumvent
technology-based protections of copyrighted materials

The Digital Millennium Copyright Act

Patent
 A patent is a set of exclusive rights granted by a
state to a person for a fixed period of time in
exchange for the regulated, public disclosure of
certain details of a device, method, process or
composition of matter (substance) (known as an
invention) which is new, inventive, and useful or
industrially applicable.
 Source: http://en.wikipedia.org/wiki/Patent
 Term 20 years.

Patents: Business Methods and Processes
 Patent: Grants owner a 20-year exclusive monopoly
on ideas behind an invention
 Most of early inventions that made Internet and e-
commerce possible were not patented by their
inventors
 With commercial development of Internet, came
desire for patents
 Business methods patents have been widely sought
by Internet and e-commerce companies
 Many business methods Internet patents granted are
overbroad, and if enforced, would significantly impact
e-commerce

Explosion in Internet and E-Commerce Patents
Figure 9.4, Page 535

Selected E-Commerce Business Methods Patents

World Intellectual Property Organization (WIPO) 183 member states
WIPO-Administered Treaties- The links below provide detailed information
on all 23 treaties administered by WIPO and the WIPO Convention.
IP Protection
Global Protection
System
Classification
- Berne Convention
- Brussels Convention
- Film Register Treaty
- Madrid Agreement (Source)
- Nairobi Treaty
- Paris Convention
- Patent Law Treaty
- Phonograms Convention
- Rome Convention
- Trademark Law Treaty
- Washington Treaty
- WCT
- WPPT
- Budapest Treaty
- Hague Agreement
- Lisbon Agreement
- Madrid Agreement (Marks)
- Madrid Protocol
- PCT
- Locarno Agreement
- Nice Agreement
- Strasbourg Agreement
- Vienna Agreement

Issues in Intellectual Property Rights
 Fear from film/music industry of one copy getting out. (600M people
use Internet)
 Disobediance by all people, society wide.
 Law is complicated (like online privacy). Hard to coordinate enforcing
rights and policies across boarders. (But possible: Dow Jones vs. Gutnik, editors
defamation case took up in Australia. A business cannot ignore a case from a big market.)
 Law (Copyright Law, Dig.Mill.Copy.Act) does not impact as much as
Digital Rights Management (DRM) technology (temporary access). The
architecture of the technology. 36 state laws (anti-spam) hassel for
small business marketing. Can Spam Act 2003 – wiped out the 36 state
laws, preempted them. Says header info must be accurate, must give
receiver the right to op-out of email.
 Other ways: Markets (market power), Social norms (what is
accepted).

Digital Copyright
 Napster (1999) – easy to copy MP3 on P2P networks. Lawsuits arise.
Courts shutdown the technology itself. Then other technologies are
developed that get rid of the central server.
 Video industry is next (but the files are bigger). Broadcasters worry
about techologies that let you replay the broadcast content and skip
commercials).
 ITunes – contract law you agree to terms, can sign away your Fair
Use rights. Do you read click-through agreements? (EU says you
must be able to save the click-through agreements.) They are not
negotiable, take-it or leave-it. (99c song, or airline ticket).
 First Sale doctrine does not hold online. In physical world you no
longer have the copy if you give it to another.
 Fair Use – allowable copies (?) EU more consumer rights than in US.

 On Oct.12, 1998, the U.S. Congress passed it. Oct. 28th, President Clinton
signed the Act into law.
 The Act is designed to implement the treaties signed in December 1996 at the
World Intellectual Property Organization (WIPO) Geneva conference, but also
contains additional provisions addressing related matters.
Highlights Generally:
 Makes it a crime to circumvent anti-piracy measures built into most commercial
software.
 Outlaws the manufacture, sale, or distribution of code-cracking devices used to
illegally copy software.
 Does permit the cracking of copyright protection devices, however, to conduct
encryption research, assess product interoperability, and test computer security
systems.
 Provides exemptions from anti-circumvention provisions for nonprofit libraries,
archives, and educational institutions under certain circumstances.
 In general, limits Internet service providers from copyright infringement liability
for simply transmitting information over the Internet. (carriers not content
providers)
 Service providers, however, are expected to remove material from users' web
sites that appears to constitute copyright infringement.

 Limits liability of nonprofit institutions of higher education -- when they serve
as online service providers and under certain circumstances -- for copyright
infringement by faculty members or graduate students.
 Requires that "webcasters" pay licensing fees to record companies.
 Requires that the Register of Copyrights, after consultation with relevant
parties, submit to Congress recommendations regarding how to promote
distance education through digital technologies while "maintaining an
appropriate balance between the rights of copyright owners and the needs
of users."
 States explicitly that "[n]othing in this section shall affect rights, remedies,
limitations, or defenses to copyright infringement, including fair use..."
 Full Text of the Digital Millennium Copyright Act
 The WIPO Copyright Treaty - Geneva - December 2-20, 1996
 Copyright Laws are accepted internationally through treaties.

Warez Hackers End Up in the Slammer
 Super uploaders enable the sharing of copyrighted movies,
music and software.
 David Fish, Cgirayu Patel, Willam Veyna, and Nathaniel Lovell,
had been arrested on felony charges and jailed for violating
federal copyright laws including: Digital Millennium Copyright
Act of 1998 (DCMA) and the No Electronic Theft Act (Net Act)
of 1997. They may face 5 years in prison.
 They were involved in large scale (more than 10 copies, even
without profit motive) distribution and copying of copyrighted
materials.
 Organized uploaders of digital works involve an entire supply
chain of actors: suppliers, crackers, cammers, and couriers.
 Legally it costs more to go after the individual downloaders than
to go after the organized uploaders.

Trademarks: Online Infringement and Dilution
 Trademark: Mark used to identify and distinguish goods,
and indicate their source
 Trademarks protect public by ensuring it gets what it
pays for/expects to receive; protects trademark owner
against piracy and misappropriation
 Infringement: Use of a trademark that creates confusion
with existing marks, causes consumers to make market
mistakes or misrepresents origins of goods
 Anticybersquatting Consumer Protection Act (ACPA):
Creates civil liabilities for anyone who attempts in bad
faith to profit from an existing famous or distinctive
trademark by registering an Internet domain name that is
identical or confusingly similar

Types of Trademark Abuse on Internet
 Cybersquatting: Registration of infringing domain name, or
other Internet use, of existing trademark, for purpose of
extorting payments from legitimate owners
 Cyberpiracy: Involves same behavior as cybersquatting, but
with intent of diverting traffic from legitimate site to infringing
site
 Metatagging: Using another’s trademarks as metatags in a
misleading or confusing manner
 Keywording: Using another’s trademarks as keywords on
search engines in a misleading or confusing manner
 Deep linking: Bypassing target site’s home page and going
directly to content page
 Framing: Displaying content of another site within frame or
window

Internet and Trademark Law Examples

Free Speech, Spam and Fraud
 http://cit.cornell.edu/oit/ucpl/Cyberspace_100
6041.ppt (John Palfrey, fromHarvard Law
School., 2004)
 http://cit.cornell.edu/oit/ucpl/Palfrey1.ram
(John Palfrey lecture on Law in Cyberspace.)
Student study on Spam at HSM

Technology against spam
 Filtering (client side)
 Challenge and response (must prove you are who
you say you are). (White list who is in your mail book.
Must know them first.)
 Blacklisting (on ISP servers) List of bad spammers or
relays. Universities subscribe. Get listed, for days
cannot send and receive email. Problem, HSM gets
listed often.
 IETF system tried to develop an authentication
system on Internet, but gave up.
(Next Lecture…Taxation and e-Government.)

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